LLOYDS Banking Group has posted a s3.3 billion first half loss after setting aside s3.2 billion for mis-sold loan insurance.

This compares with a first half profit of s596 million posted last year.

The group said another 11 per cent of its s27.6 billion Irish loan book is now impaired taking the percentage of loans going bad in the portfolio to 64 per cent.

Bad loans in the Irish portfolio now total s17.7 billion and Lloyd's has warned of further vulnerability.

Lloyds also said refinancing debt in the UK property market outside of London and the south east remains an issue.

First half impairments - an estimate of loss from an asset over the long term compared to its book value - was s4.5 billion compared to s5.4 billion last year.

The group said its exposure with the national and local governments of Spain, Italy, Portugal, Ireland, Greece and Belgium totals s189 million.

Earnings from loans, taking into account the cost it pays for wholesale funding, is now 2.07 per cent, down from 2.12 per cent at the same point last year.

This reduction in earnings from loans is down to Lloyds weaning itself off of low interest government loans.

Finance director Tim Tookey said: "We've been seeing the effect on the margin of repaying the relatively inexpensive government and central bank funding and replacing that with more sustainable long-term funding for the group."

Lloyds has reduced its support from government and central banks from £96.6 billion at December 31 last year to s37.1 billion at June 30, 2011.

However, Lloyds accessed s295.6 billion in wholesale funding for the six months to June, down slightly on £298 billion reported in December.

The bank said customer relationship deposits rose three per cent rise in the first half, though customer balances dropped slightly to s963 billion from s972 billion reported last December.

Lloyds is still lending to deposit ratio has fallen from 154 per cent last year to 144 per cent, meaning Lloyds lends out 144 pence for every pound it takes in.

The bank said it reduced so-called 'non-core' assets - loans and assets it doesn't see as core to its business going forward - by s31 billion, taking the non-core asset base to s162 billion.

The bank announced in June it was cutting 15,000 jobs on top of 27,000 roles already cut since it acquired Halifax Bank of Scotland in 2008, in an effort to cut costs by a further s1.5 billion.

Lloyds was ordered by EU regulators to sell off 632 of its branches to alleviate competition concerns in return for accepting more than s20 billion in government aid since 2008.

The group said it has had a number of credible approaches for the branches and hopes to have a buyer by the end of the year, though refused to name any of the potential suitors.

The Independent Commission on Banking, which is due to issue its final report in September, has recommended Lloyds be forced to sell off more assets outwith the branch sale.